PSD2: Getting Ready For The Next Generation Of Payment Services (Part 2)

The EU Commission's long-awaited proposals for a new Payment Services Directive (PSD2) contain much for existing providers of payment services to consider. This is in addition to the changes which will bring many new players into the regulatory sphere for the first time (as highlighted in Part 1 of our commentary on PSD2).

The Commission's assessment of the 2007 Payment Services Directive (PSD) was that it was generally fit for purpose but that there was much more that could be done in order to improve European payment systems. It has 5 main objectives:

to achieve a more integrated and efficient European payments market to create a more level playing field for payment services providers to ensure high standards of consumer protection to encourage lower prices for payments and to facilitate the emergence of common technical standards and interoperability. The Commission is proposing a dual approach: PSD will be repealed and replaced by PSD2; and new regulations will be introduced covering interchange fees for card-based payment transactions (IF Regulations). Key points include:

Controls on interchange fees and surcharging

Interchange fees (where a retailer's bank pays a fee to the customer's bank when a credit or debit card is used to make payment) will be capped at 0.2% for most debit cards and 0.3% for most credit cards. The Commission's concern with interchange fees is threefold: These fees are passed back by the retailer's bank to the retailer and reflected in higher retail prices which, the Commission noted, are borne by all customers, and not just those paying by card. The level of fees varies significantly between member states which leads to consumer confusion where goods are being bought in one state with a card registered in another and consequential fragmentation of the internal market. High interchange fees stifle competition and creativity in the payment services sector since new and innovative providers and low fee domestic operators cannot expand as banks expect to receive at least the same high revenues from them as from existing card payment schemes. The capping will be phased in, applying to cross-border payments as soon as PSD2 and the IF Regulations come into force, and applying to domestic card payments after 2 years.

Merchants will be able to surcharge, or refuse to accept, any cards which are not subject to the cap on interchange fees. The level of any surcharge must not exceed the real cost of using that card...